30 March 2020
The balance between medicine and economics
Lowy Institute Nonresident Fellow Stephen Grenville asks if the policy response to Covid-19 strikes the right balance in the debate between epidemiologists and economists, moderated by the public-relations experts. Originally published in The Australian.
The balance between medicine and economics
The evolving policy response to Covid-19 reflects a vexed debate between epidemiologists and economists, moderated by the public-relations experts. Are we getting the right balance?
Initially, some economists thought that the doctors were exaggerating the seriousness of the epidemic, by quoting frightening figures of exponential growth. Were the doctors calling for an excessive degree of containment because they didn’t understand the cost of locking down large parts of the economy? A gentler strategy would protect the economy by sequential staged measures, responding to the actual progress of the epidemic. A scaling-up approach might allow us to get by with less damage to the economy.
The experience of Italy, however, has put an end to that argument. No democratic government can maintain a light-touch containment/mitigation strategy in the face of the sort of daily death rates that Italy experienced last week, with deaths rising from 400, to 600 then 800 over three days. It’s clear that this high toll was a direct result of an overwhelmed hospital system, with insufficient intensive-care facilities.
The idea of ‘flattening the peak’ was already widely accepted, but the triage experience of Italy sharpens the idea. The peak that needs flattening is not the total number of cases, but the number of cases needing IC facilities.
The elderly, the immunity-compromised and the infirm are the ones most likely to need IC care if they contract the disease – one credible estimate is that 10% of cases in this vulnerable group will need an ICU. This cohort must be protected, not just for their own good, but to avoid an all-out comprehensive lockdown, with the enormous economic damage this would cause. This vulnerable group must be subjected to a rigorous, full-isolating lockdown, much tougher than at present.
Of course the rest of the population will still have to practice stringent social distancing, handwashing and maybe even compulsory mask-wearing (when we have enough of them). ‘Super-spreaders’ should be understood to be events and environments, not individuals. So no more football, concerts, or religious services with physical meetings. Comprehensive testing (when we have enough facilities) will be needed to identify cases and isolate clusters in the general population. Experts need to decide whether schools and hairdressers can operate. What to do with public transport?
These containment decisions need a greater degree of granularity than current measures. But the objective here is clearer than at present: the bulk of the economy needs to get back to work ASAP. Essential retail trade, factories, construction, and education via remote linkages. All this can return to some kind of normality, with close monitoring for new outbreaks, provided the most vulnerable are protected.
The OECD’s forecast of global GDP produced early this month foresaw growth of 2.4% this year, or a ‘worst case’ of 1.4%. In just a few weeks, this kind of thinking has been entirely overtaken by events. ‘Decimate’ is the word that springs to mind, in its original meaning of eliminating one in ten. The first quarter of the crisis will see GDP fall by 10% or so, simply reflecting the closing down of a large part of the service economy – airlines, restaurants and non-essential retail trade. Unemployment will top 10%, probably substantially.
A successful flattening strategy would entail keeping GDP down, as the strategy spreads out the peak over time. Easing off on containment produces a second wave -- already seen in those Asian countries which succeeded in containing the initial onslaught. So ‘low for long’ will not only apply to interest rates, but to GDP as well. There is no ‘V-shaped’ recovery in sight.
If this dramatic scenario is scary enough to get the policy-makers to agree to a more targeted containment strategy, the next task is to sell this unpopular idea to a reluctant public, that only a week ago was basking, cheek-to-cheek, on Bondi beach. To separate grannies from their little-darlings is uncivilised. What is the strategy to sell such an unpalatable message? A bevy of masked-and-gowned ICU surgeons pleading with us to stay at home clearly isn’t enough.
Perhaps we need a ‘good cop, bad cop’ approach. The Prime Minister could go on assuring us that our ANZAC spirit will see us through and we’ll soon be back at the footy with a virus-free pie in our hand. Who for the bad-cop role? Who better than Peter Dutton? Flanked by a couple of black-clad grim-faced members of his border force, he could issue a stern injunction: any elderly person found chatting face-to-face with their grandchildren, or slipping into a convenience store for a loaf of bread, will be disciplined. Their names will be taken down and later, when they are waiting in the queue for the scarce ventilators at an over-stretched hospital, they will be placed last-in-line.
Stephen Grenville is a Nonresident Fellow at the Lowy Institute, former deputy governor at the Reserve Bank, and certified elderly by any definition.